Why Digital Services Companies Should Strive for 100% Productive Utilization
High-performing digital services companies and tech consultancies regularly achieve billable utilization rates of 75-85%.
If you consistently hit this target, you’re doing pretty darn well. However, what really sets high-utilization businesses apart from one another is how they dedicate the remaining 15-25% of their employees’ time.
Digital services companies that proactively plan how their employees spend their non-billable time can more effectively innovate to stay competitive and build a culture that attracts and retains the best talent. It’s time digital services companies and consultancies pair their billable utilization targets of 75-85% with productive utilization targets of 100%.
Billable utilization vs. productive utilization
First, let’s define how we think of the difference between billable utilization and productive utilization. We’ll approach this with a 40-hour work week in mind.
Billable utilization is the number of hours employees bill (invoice) to clients divided by the number of hours they’re available (capacity). If your employees bill 32 hours of a 40-hour work week, their billable utilization rate is 80%. Most digital services companeis will segment utilization rates by employee type because individual contributors will typically bill more to clients than managers or leaders who spend more non-billable time on people development and managing the business.
On the other hand, productive utilization is the percentage of time employees charge time to clients plus other budgeted value-added initiatives that are also important but don’t contribute to immediate revenue. Building a new service offering or other intellectual property (IP), doing pro bono work for a client, or deploying new internal tools (like Parallax to improve your services’ KPIs 😏) are all examples of work that is “productive.” Filling out timesheets, attending internal meetings, and admin activities are examples of true non-billable, non-value-added time that tend to bloat services firms as they start to grow (but are usually still necessary to get done).
Why the difference between billable and productive utilization matters
When digital services companies focus only on billable utilization and neglect productive utilization, it leaves a gray area. How should employees spend the remaining hours they have available each week?
Of course, if there’s more work in the backlog, you can fill some or all of your employees’ time with more client work. There’s nothing wrong with billable utilization rates exceeding your target, as long as employees aren’t consistently and regularly billing 100% of their time*.
Tip: You don’t want billable utilization to hit 100% regularly. Maxing out billable utilization means employees don’t get time for professional development or to support the development of new service offerings. Plus, 100% billable utilization can lead to burnt-out employees, which isn’t good for you or them.
Billable utilization targets of 75-85% make sense, but your agency should also have a productive utilization target, and it should always be 100%. In reality, you might rarely hit this 100% productive utilization target because your team still needs some time for non-billable admin work, like timesheets and updating the CRM. But striving for 100% productive utilization means you’re proactively planning for how your employees spend all of their time — even the time you can’t bill clients. This prevents valuable time from going to waste and encourages you to strategically put this time to good use. The best agencies put this “extra” time toward smart investments into their futures.
The best digital services companies plan time for innovation and development
Digital services companies that proactively plan how employees spend all of their time can proactively set aside time to develop new service offerings, cross-train employees, and better invest in their people to create a healthier and happier culture. Here’s how.
- Set aside time for innovation. To survive and remain relevant, every company needs to innovate. To innovate, companies must set aside time to evaluate which of their services:
- Are growing in demand (and which are declining)
- They can sell on their unique approach and experience (and not solely on price)
- Set them apart from competitors
This innovation work only happens when companies schedule time for it. Otherwise, day-to-day client needs take priority, and innovation falls to the backburner. Assign your employees time to think about recent client projects and needs*. Challenge them to identify needs that emerged during those projects that the company could build, sharpen, or expand their service offering around. How can the company start taking steps to create these new or refreshed service offerings? Think beyond billable utilization to fully utilize your employees’ time to support company innovation and strategic growth.
Tip: Not all employees are cut out for innovation work. It’s important to understand the different roles different employees play at your agency. Consider each employee’s unique talents when determining how best to utilize their time fully. Check out our Explorers, Builders, and Teachers framework for one way to think about this.
- Invest in your people. If you’re doing innovation work correctly, your teams will likely identify skill gaps at your agency. Your team will always need to be learning to deliver the next big strategy, methodology, or technology to clients. Investing in professional development is important not only to ensure your business has the talent it needs to succeed in the future but also because, without it, employees will likely become bored and disengaged. Today’s employees expect their employers to invest in their learning and growth.
Allocating time for managers to dedicate to the development of their people and for individual contributors to dedicate to training and courses, will help your business acquire the skill sets it needs for the future while keeping employees happy, growing, and engaged. Factor professional development into your utilization plans and ensure the training and education you support aligns your people’s goals with the skills your business will need in the future.
When digital services companies allocate time to innovation and employee development, their business strategy is stronger, and they have a more talented workforce. These things support a better company that can attract more of the good work that everyone wants to be a part of — the work that supports the company’s strategic direction and is more rewarding for employees to work on. It’s a positive, rewarding cycle that gives everyone a reason to celebrate: Invest in your business and your people, attract and retain better employees and clients. Attract and retain better employees and clients, earn even better work. Your company can more intentionally create strategic growth when you strive for 100% productive utilization.
Utilization pitfalls to avoid
Before you rethink your approach to utilization, be mindful of the pitfalls many digital services companies fall into. Avoid these common mistakes to ensure you’re not using the metric in the wrong ways or for the wrong reasons
1. Getting carried away with non-billable projects
Sometimes when companies first start allocating their employees’ time to non-billable projects, they end up with too many or the wrong kind of projects. If they don’t pay attention, they can soon find themselves with numerous committees meeting to discuss initiatives that don’t have much impact on the business or employees (company picnic, anyone?).
This misalignment of priorities can lead to the backlog piling up and employees not billing enough of their time. Billable utilization and revenue targets get missed, and the company can’t invest in its future or its people as much as it needs to. Non-billable projects should always align with the company’s business strategy to support and elevate the company and its employees.
2. Using utilization as a lagging indicator
If you review your actual billable utilization weekly and then react to low numbers by pushing employees to bill more or work harder, you’re reacting too late. You’ll stress out employees and hurt your culture, but you won’t do much to improve utilization.
Instead, visibility into the sales pipeline can help your company proactively:
- Understand what work is coming.
- Assess whether the projected work is enough to hit billable utilization targets.
- Determine if you have enough people staffed to complete the work.
If your forecasted billable utilization is too low, you may need to step up marketing and business development efforts to win more work. If your projected billable utilization is too high, you may need to hire more people to get the work done. Either way, you’ll know early enough to take an action that will make an appreciable difference.
3. Increasing billable utilization by stuffing meetings
One of the worst mistakes digital services companies make is increasing their billable utilization by sending employees to meetings they don’t need to participate in. They do this so they can charge more (and increase their employees’ billable utilization).
This practice isn’t good for anyone. Clients pay for time that didn’t generate any value. Employees are bored and annoyed because they’re in meetings they don’t need to be in. The company wastes valuable time it could instead allocate to identifying opportunities for company innovation or investing in employee skill development. Avoid this utilization pitfall at all costs and instead determine the root cause for low billable utilization — and fix it.
It’s time for digital services companies to plan how they will fully and productively utilize their employees to better support their professional development and the business’s growth. Companies that make good use of their employees’ non-billable time will stay relevant and competitive and create a work culture that attracts the best employees.
Parallax, a professional services automation platform, can help your team make data-informed, proactive decisions that ultimately helps you run a smarter, healthier, and happier business. Would you like to see how Parallax can help you more effectively utilize your employees and make investments into your future? Reach out to schedule a demo to see the product for yourself.